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HomeReiman, The Rich Get Richer Corporate Fraud 2002 > Legislation

Getting Tough on Corporate Crime?

Enron and a Year of Corporate Financial Scandals

Jeffrey Reiman and Paul Leighton


This essay is published by Allyn & Bacon, and distributed as a supplement to Jeffrey Reiman's The Rich Get Richer & the Poor Get Prison, 6th ed (2001) starting in Winter 2003. 

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Tough on Corporate Crime Intro + Huff and Puff and.. Do Little 
Hot Deals, Looting and Covering Up: Understanding the Frauds of 2002 
Sarbanes-Oxley legislation & critique
Scoundrel Capitalism - Chart detailing the major wrongdoing

whole article as printable adobe.pdf

see 2004 update: A Tale of Two Criminals: We're tougher on Corporate Criminals, But They Still Don't get What They Deserve

Response and Legislation: Sarbanes-Oxley and Its Limitations [Pt 3] [Pt 1 ~ 2]

The President announced a new corporate fraud task force, although critics quickly pointed out the official responsible for this “financial SWAT team” was a director of a credit card company that had been forced to pay more than $400 million to settle consumer and securities fraud suits. Bush announced $100 million for the SEC, although Laura Unger, a Republican who has served as acting chairman of the SEC, commented that "$100 million is not even close to enough to really make a significant difference" in regulatory effectiveness. [xxvi]  No provision was made to replace 500 FBI agents who had been transferred from white-collar crime enforcement to counter-terrorism efforts. Leon E. Panetta, a co-chairman of a New York Stock Exchange panel on corporate reforms was disappointed that Bush, as a former businessman, did not challenge his peers more earnestly “on a whole range of other issues that determine whether we really change the culture of American business . . . .  It's not just the fraud we have to deal with—it's the whole get-rich-quick, boost-the-stock-price environment that invited it and encouraged it that we need to address." [xxvii]

Panetta’s comments also apply to the Sarbanes-Oxley Act, which included many of Bush’s suggestions and additional provisions.  The act was signed into law on July 30, 2002. It created a new board to oversee the accounting and auditing of publicly traded companies, limited the ability of accounting firms to be both auditors and consultants of the same firms, gave shareholders five rather than three years to sue companies that misled them, and increased possible fines and jail sentences for those who violate new and existing corporate laws.  (A full list of the bill’s most important provisions and limitations is available through Citizen Works.)  Much of the law is a step in the right direction. However, political compromises in Congress led to changing the standard for holding executives liable for fraud from "reckless" (in allowing it to happen) to "knowing" (that it was happening)—the new standard requires stronger evidence and makes the case more difficult for prosecutors.  Another issue involves “disgorgement,” the technical term for the amount and conditions under which executives must repay money taken in fraud. Congress voted not to apply this to company officers and directors who knew about misconduct but were not directly involved in it. [xxviii]

As soon as the ink was dry on the legislation, the Washington Post reported that, “Members of Congress from both parties accused the administration of undermining or narrowing the scope of provisions covering securities fraud, whistle-blower protection and punishment for shredding documents.” Critics, including the bill’s authors, charged that the Justice Department drew up interpretations and prosecution guidelines that contradicted the legislative intent of the reform measure. Sen. Charles E. Grassley (R-Iowa) blasted the administration on whistleblower protection, saying “Any dummy that reads the bill knows what we meant. We couldn't have written it any clearer." And Senator Patrick Leahy, (D-Vermont), Chair of the Senate Judiciary Committee, commented: “The president said all the right things at the signing ceremony. But now given the tough law, they're basically saying, 'We're not going to use it.' " [xxix] 


see The section on Sarbanes Oxley in A Tale of Two Criminals: We're tougher on Corporate Criminals, But They Still Don't get What They Deserve

Wall Street Sees Chance To Put Off Reforms: Pitt's Departure, GOP Win Prompt Go-Slow Sentiment (Washington Post 11/8/02)

Sarbanes-Oxley 1st year anniversary, resources from Washington

Further, the legislation did not address the longstanding call for a publication similar to the FBI’s Uniform Crime Reports that would cover white-collar crime. (The Rich Get Richer is forced to base its estimates of the costs of white-collar crime on a 1974 US Chamber of Commerce report, with updates culled from a large number of disparate publications and figures adjusted annually for inflation; see Table 3-1). Indeed, as early as

the 1940s Edwin Sutherland explained that members of the lower class were over-represented in official crime statistics because those statistics did not include economic crimes committed by high-status individuals in the course of doing business. Some fifty years later we still lack systematic information on the nature of white-collar crime, as well as official reporting and tracking procedures designed to capture its incidence or the government’s response. [xxx]

Without such information, attention to the recent incidents will fade—as it did with the S & Ls—and “crime” will once again refer to the minority youth who figure in so many television crime shows.  Based on these images, coupled with the FBI Uniform Crime Report’s focus on the crimes of the poor as well as the lack of a credible data source on white collar crime, Americans will return to the belief that the greatest threat to them is from those lower on the economic ladder (see Chapter 4 of The Rich Get Richer, “To the Vanquished Belong the Spoils: Who Is Winning the Losing War Against Crime”).

Conclusion: The Rich Get Richer

It’s too early to determine whether 2002’s crop of corporate wrongdoing is going to lead to stricter laws and more consistent and energetic enforcement of them.  However, the early signs do not give reason for optimism.  Furthermore, an adequate response to the recent corporate scandals should not stop with punishing the wrongdoing.  A hard look at CEO pay, bonuses, perks and “Golden Parachute” severance packages will raise issues about the persistence and growth of economic inequality in the U.S. For example, papers filed by Tyco with the SEC detail that CEO Kozlowski used the money from Tyco to buy: a $15,000 umbrella stand shaped like a poodle; a $6,000 shower curtain, a $2,200 trash basket, and $2,900 worth of coat hangers. Part of the problem is that he improperly used Tyco money to buy such items; the other problem is that many executives see such luxuries as part of their entitlement, even while September 2002 newspaper headlines announced: “U.S. Poverty Rate Rises, Income Drops.” [xxxi] The increase in the poverty rate means that 11.7% of American families now live below the poverty line, which is set at about $18,000 for a family of four—or about what Kozlowski would spend on a poodle-shaped umbrella stand and some coat hangers.

Tyco Report Paints Picture Of Greed ($15,000 dog umbrella stand?); Business Today also did a report noting a $2,200 trash basket

table shows rising levels of inequality - the rich get richer and the poor get poorer

The Table clearly indicates that over the last 20 years, the amount of total income going to the poor has decreased and the share of income going to the wealthy - especially the really wealthy - has increased. 

Scoundrel Capitalism - Chart detailing the major wrongdoing

Tough on Corporate Crime Intro + Huff and Puff and.. Do Little [part 1]

Hot Deals, Looting and Covering Up: Understanding the Frauds of 2002 [part 2]

Excellent Year for Executives: CEO Compensation Rose Nearly 17% (Washington Post, 19 June 2003; Page E01) Total cash compensation in 2002, including salary, bonus and other direct payments, rose nearly 17 percent, to a median of about $1.2 million, in 2002. The median figure represents the point at which there are an equal number of chief executives above and below. The bigger salary and bonuses in 2002 came in a year when corporate profits continued to stagnate and the Standard & Poor's 500-stock index, a broad indicator of the market, dropped 23 percent. 


[xiii] L. William Seidman, former chair of the Resolution Trust Company, which managed S & L banks’ assets during the bailout, commented: “We provided them with such perverse incentives that if I were asked how to defend the S & L gang in court, I’d use the defense of entrapment” (Calavita et al., Big Money Crime: Fraud and Politics in the Savings and Loan Crisis (Berkeley: University of California Press, 1997). p 15).

[xiv] Weiss, “Congress Will Huff and Puff and . . . Do Little,” p. 116.

[xv] Lynn Turner, “Just a Few Rotten Apples? Better Audit Those Books,” Washington Post (July 14, 2002), p. B1.  Enron is a good example, according to the Washington Post series, which quoted one executive as saying: "The culture at Enron is all about 'me first, I want to get paid.' I used to tell people if they don't know why people are acting a certain way, go look up their compensation deal and then you'll know. There were always people wanting to do deals that didn't make sense in order to get a bonus." Peter Behr and April Witt, Visionary's Dream Led to Risky Business, Washington Post July 28, 2002; Page A01

[xvi] Calavita, Kitty, Henry Pontell and Robert Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis (Berkeley: University of California Press, 1997). p. 171; see also Gimein, “You Bought. They Sold,” passim.

[xvii] Carrie Johnson, “Ex-Enron Executive Pleads Guilty,” Washington Post (August 21, 2002).

[xviii] Peter Behr and April Witt, “Visionary’s Dreams Led to Risky Business,” Washington Post (July 28, 2002), p. A1.

[xix] Allan Sloan, “Free Lessons on Corporate Hubris, Courtesy of Enron.” Washington Post (December 4, 2001), p. E3; see also Gimein, “You Bought. They Sold,” passim.

[xx] Peter Behr and April Witt, Concerns Grow Amid Conflicts” Washington Post (July 30, 2002), p. A1.

[xxi] David Hilzenrath, “Two Failures With a Familiar Ring: Arthur Andersen Audited Foundation, S&L That Collapsed” Washington Post (December 6, 2001), p. A21.

[xxii] Julie Creswell, “Banks on the Hot Seat,” Fortune (September 2, 2002), p. 80.

[xxiii] In one recent case, the National Association of Securities Dealers fined the Salomon Smith Barney Unit of Citigroup $5 million for “materially misleading research reports” on Winstar Communications. Analysts kept a $50 target price and a “buy” rating on the company until the price of a share hit $0.14. An article for notes Salomon made $24 million in fees from Winstar, and Citigroup CEO Sandy Weill made $70 million a year for the last three years, plus has holdings in Citigroup worth about $960 million. “Meanwhile, the NASD trumpets that this settlement is the third largest in NASD’s history. Well, if we were the NASD and we wanted to strike fear in the hearts of brokerage firms, we would keep that little statistic a secret.” George Mannes, “The Five Dumbest Things on Wall Street This Week” (9/27/2002),

[xxiv]  David Teather, “The Whores or Wall Street,” Guardian (October 2, 2002), available at,12271,802926,00.html. For example, 

At the end of January 2001, John Hoffman, head of global equity research management at Salomon, acknowledged internally that the bank's ratings were "ridiculous". Out of 1,179 stock ratings at the time, there were no "sell" recommendations and only one "underperform".

In another internal email, Mr Grubman said to the head of research: "Most of our banking clients are going to zero and you know I wanted to downgrade them months ago but got a huge push from banking. I wonder what use bankers are if all they can depend on to get business is analysts who recommend their business clients." Of the 36 companies he covered, 16 went bankrupt but he never issued a single "sell" recommendation.

[xxv] The text of the speech is available through the White House Corporate Responsibility portal,

[xxvi] Anitha Reddy, “$100 Million More for SEC Not Enough, Ex-Officials Say,” Washington Post (July 10, 2002), p. E1.

[xxvii] Stephen Pearlstein, “Measures Not Likely to End Abuses,” Washington Post (July 10, 2002), p. A1.

[xxviii] The particulars of the legislations and some of its limitations is from Citizen Works,

[xxix] Jonathan Weisman, “Some See Cracks In Reform Law,” Washington Post (August 7, 2002), p E1.

[xxx] Calavita, Kitty, Henry Pontell and Robert Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis (Berkeley: University of California Press, 1997). p. 3.

[xxxi] Steven Pearlstein, Washington Post (September 25, 2002), p. A3.


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